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To: Moominoid who wrote (88731)	9/11/2007 1:43:17 AM
From: Hawkmoon	Read Replies (2) \| Respond to of 306849

So I have a question here, amidst all this discussion of monetary policy (FF vs Temporary).. Exactly how would you, or Grace factor in the inverted yield curve on Government T-Bills? Am I hearing folks trying to convince us that the rate on government long term bonds is irrelevant to where the Fed sets the FF or discount rate? It is not natural that the Fed should seek to find equilibrium between the FF rate and the rate at which the government creates money via issuance of public debt? Because that's what the Government does when it issues debt.. It creates money backed by the full faith and credit of the American people (and taxes them to pay it back). All the Fed does to influence money supply is buy (inject) or sell (drain) government debt. And when the public is competing with the Fed for a diminishing quantity of public government debt instruments, why is it that the Fed keeps rates higher than the the price the private market is willing to accept as a return on government debt? Why is not relevant that the Government can now borrow money for 10 years at a lower rate than commercial banks can borrow from one another (or from the Fed via the discount window)? I'd really like to know, because I'm not seeing anyone discussing what I perceive as the "elephant in the living room".. Hawk

To: Moominoid who wrote (88731)	9/11/2007 10:42:07 AM
From: GraceZ	Read Replies (4) \| Respond to of 306849

I thoroughly understand how the current mechanism works. While you seem to think, it's only the FF rate and who cares what rate banks use to make interbank loans, all the other short term interest rates are directly or indirectly influenced by this rate. Important (to you and me) rates like the prime lending rate. What I'm trying to get you to see is that the Fed interferes in setting the price of what could be (and should be) set by a free market. They do this to engineer the economy, to engineer prosperity and they have no business engineering the economy because it isn't possible for them to know where the economy should go. It's the last vestige of a command economy in what is suppose to be a free market capitalist economy. It isn't even possible for them to know how much money should be in the system. They are constantly using monetary policy to correct past monetary policy mistakes. Just about all the problems that people complain about here and elsewhere are caused by their interference.